Goswami, C.J. -
(1.) BY this reference under Section 256(1) of the Income-tax Act, 1961, hereinafter called "the Act", the Income-tax Appellate Tribunal has referred the following question to this court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the refusal of registration to the assessee-firm for the assessment year 1961-62, on the ground that no genuine firm came into existence under the deed dated February 23, 1959 ?"
(2.) THE facts and circumstances revealed in the statement of the case may now be set out: THE assessment year in question is 1961-62 for which the corresponding accounting year is 1367 B. S. An application under Section 26A of the old Income-tax Act, for registration of the assessee-firm as constituted under an instrument of partnership dated 23rd February, 1959, was made in respect of the assessment year 1961-62. It appears that, due to certain defects in the aforesaid deed, the firm's previous applications for registration in the earlier years ,had been rejected. This, according to the assessee, led to the execution of a deed of rectification on March 4, 1962. In both the deeds the partnership is stated to have commenced with effect from 1st of Baishakh 1365 B. S. THE Income-tax Officer rejected the present application by his order dated March 28, 1963. THE order was affirmed on appeal by the Appellate Assistant Commissioner by his order dated December 21, 1963. On further appeal by the assessee to the Tribunal, the application met with the same fate and the order of the Appellate Assistant Commissioner was sustained. THE facts that were relied on by the assessee before the Tribunal were that Nishikanta Sen, who was an employee of Ganesh Das Sree Ram Das of Fenchuganj in the district of Sylhet, started a retail grocery shop at Karimganj with his eldest son, Madhusudan, in 1342, B. S. Nishikanta's second son, Jadunath, joined the business in 1938, while his third and fourth sons, Bidhu Bhusan and Benoy Bhusan, joined the business in 1943 and 1950, respectively. It was further claimed that the four sons developed the business and in 1950, they decided to start a branch in Calcutta and the Karimganj shop was turned into a wholesale business. It was further stated that from the year 1957, the Calcutta branch was managed by Jadunath and Benoy Bhusan while the business at Karimganj was looked after by Madhusudan and Bidhu Bhusan, the father, Nishikanta, who was 73 years of age being too old to look alter the business. On February 23, 1959, a deed of partnership was executed by and between Nishikanta and his four sons which recited, inter alia, that the parties intended to be partners in the business of M/s. Nishikanta Madhusudan Sen, so long belonging to and carried on by the partners as coparceners of the Hindu undivided family of which the first partner was the karta, and which had by a memorandum of partition dated February 23, 1959, been taken out of the Hindu undivided family and divided among the partners in equal shares, by division of book balances in the books of accounts of the business. Clause 5 of the said deed provided that the capital of the partnership would be Rs. 1,20,000 which belonged to the partners equally, being made up of the assets previously held by the partners as coparceners of the Hindu undivided family, of which the first partner was the karta. THE deed is marked as annexure "C".
Applications for registration of the firm for the assessment year 1959-60 and 1960-61 were rejected on the ground that the firm was not genuine as Nishikanta was governed by the Dayabhaga school of Hindu law and there could not be a coparcenary consisting of himself and his sons. It was also found that the assets of the business were not divided and the partners' accounts were not credited with any capital as at 1st of Baisakh 1365 B. S., as claimed in the partnership deed. In consequence of such refusal of registration, a fresh deed was executed on March 4, 1962, between Nishikanta Sen and his four sons wherein, after reciting the circumstances in which the business was started by Nishikanta Sen who was helped in the business by his four sons and also reciting that in the deed of partnership dated February 23, 1959, the partners were described as coparceners of a Hindu undivided family, it was stated that whereas the partners considered it necessary to execute another deed of partnership to clarify the position without affecting the terms and conditions embodied in the deed of partnership dated February 23, 1959, this partnership deed was being executed. This deed is marked as annexure "D".
The deed was described as a deed of partnership. Clause 5 of the deed provided that the capital of the partnerhip would be Rs. 1,56,895.60 which belonged to the partners equally. The above are the facts and circumstances which appear from the statement of the case.
(3.) THE Tribunal held that it was obvious from the comparison of the two Clauses providing for the capital of the partnership that it was not a mere deed of rectification. It noticed that the capital of the partnership was declared in the earlier deed to be Rs. 1,20,000 belonging equally to the partners while in the latter the same was declared to be Rs. 1,56,895.60, which sum could be the capital of the business only on March 4, 1962, when the second deed was executed. THE Tribunal has also taken note of the fact, which is admitted by both sides, that registration had been granted to the assessee for the assessment year 1962-63 on the basis of the new deed, annexure "D". THE Tribunal did not accept the contention of the assessee that the description in the earlier deed of the business as belonging to the coparcenary of the father and the four sons was due to a mistake of law on the part of the partners, and that since Nishikanta, a Dayabhaga father, was the absolute owner of the business, he should take his sons as partners without any contribution of capital by them. It was, therefore, contended unsuccessfully by the assessee before the Tribunal that what was described by him as mere mis-description should not be fatal to the application for registration.
The Tribunal rejected the application mainly on two grounds, the first being the fact that there could not have been a genuine partnership as recited in the partnership deed of 1959, in view of the status of Nishi-kanta who is governed by the Dayabhaga school of Hindu law; incidentally it refused to accept the plea of mistake of law in reciting the deed and that the second deed was not at all a deed of rectification. Secondly, the Tribunal held that the partnership deed of 1959 was not acted upon. Under this head it took note of the fact that the capital Rs. 1,20,000 mentioned in the earlier deed was. not apportioned to the capital accounts of the several partners either during the accounting year 1364 B.S. or even during 1365 B.S. It was only after the closing of the accounting year 1365 B.S. (ending on April 13, 1960), that the capital of Rs. 1,56,895 was apportioned between the partners and entries made some time in 1961. The Tribunal, therefore, refused to act on the terms of the deed of 1959 in the absence of any other satisfactory materials to show that there was a genuine partnership created under those terms.;